By Tsuyoshi Inajima and Alex Longley

(Bloomberg) Oil resumed its decline as a sharp drop in the Chinese yuan compounded fears that a deepening trade war will depress demand.Futures lost as much as 1.8% in New York. The yuan weakened beyond 7 a dollar for the first time in more than a decade after U.S. President Donald Trump said Friday he could raise tariffs on China to a “much higher number.” His threat the day before to increase levies spurred the steepest one-day slide in crude prices in more than four years. The trade outlook countered concern over Iran’s seizure of another foreign tanker in the Persian Gulf.

Asian stocks and currencies extended declines amid the escalating tension between the world’s two largest economies, as China’s move to let the yuan weaken stoked fears of a currency war. Investors are awaiting speeches from Federal Reserve policy makers this week after Chairman Jerome Powell said last month’s rate cut didn’t signal the start of a lengthy easing cycle.

The weakening of the yuan “sends an ominous signal to the market that the trade war is taking a turn for the worse,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore.

West Texas Intermediate oil for September delivery fell 42 cents, or 0.8%, to $55.24 a barrel on the New York Mercantile Exchange as of 10:56 a.m. London time.

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Brent for October settlement declined 45 cents, or 0.7%, to $61.44 a barrel on the ICE Futures Europe Exchange. The global benchmark traded at a premium of $6.21 to WTI for the same month.

Trump said Thursday he would impose a 10% tariff on a further $300 billion of Chinese imports, before saying the following day that the levies could be raised even further. China’s response on Monday roiled global markets, with equities tumbling in Europe, along with U.S. futures.

Separately, the ship taken by Iran’s Revolutionary Guards on July 31 was carrying around 4,400 barrels of smuggled fuel when it was seized near Farsi Island off the country’s southwestern coast, Sepah News reported. Iran subsequently said it wouldn’t overlook any violations by ships in the Persian Gulf.

Other oil-market news:
Saudi Arabia lowered pricing for September sales of all crudes to Asia, while raising prices to buyers in northwest Europe and the Mediterranean region. Reports alleging that fuel tankers appeared to breach U.S. sanctions against Iran were cited in court filings by a bank as it sought to seize the ships, accusing the owners of loan default.